97971mkt Manag Module 5

8/3/2019 97971mkt Manag Module 5

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Module 5Module 5Pricing strategiesPricing strategies


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Why understand pricingWhy understand pricing

to respond to aggressive priceto respond to aggressive price

cutterscutters

How to price the same productHow to price the same productwhen it goes through differentwhen it goes through different

channels.channels.

How to price the same product inHow to price the same product in

different countriesdifferent countries

How to price an improved productHow to price an improved product

while still selling the previous versionwhile still selling the previous version


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Four views of PriceFour views of Price

The Economist view: Price is set byThe Economist view: Price is set bythe forces of supply and Demand.the forces of supply and Demand.

The Accountants View: Price shouldThe Accountants View: Price should

cover costs so that a profit can becover costs so that a profit can beshown.shown.

Customers view: Price has toCustomers view: Price has to

represent good value.represent good value. Marketers view: Pricing is anMarketers view: Pricing is an

opportunity to gain a competitiveopportunity to gain a competitiveadvantageadvantage


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What is Price?What is Price?

The amt of money charged for aThe amt of money charged for a

product or service, or the sum of theproduct or service, or the sum of the

values that consumers exchange forvalues that consumers exchange for

the benefits of having or using thethe benefits of having or using the

product or service.product or service.

We should distinguish between costWe should distinguish between cost

to the supplier of producing /to the supplier of producing /providing the product and price paidproviding the product and price paid

by the buyer to acquire the product.by the buyer to acquire the product.


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SETTING THE PRICESETTING THE PRICE

Selecting the pricing ObjectiveSelecting the pricing Objective

Determining the demandDetermining the demand

Estimating CostsEstimating Costs Analyzing competitors costs, pricesAnalyzing competitors costs, prices

and offersand offers

Selecting a pricing methodSelecting a pricing method Selecting the final PriceSelecting the final Price


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Selecting the pricingSelecting the pricing

ObjectiveObjective A company can pursue any of fiveA company can pursue any of five

major objectives through pricing:major objectives through pricing:

survival,survival,

maximum current profit,maximum current profit,

maximum market share,maximum market share,

maximum market skimming ormaximum market skimming or product-quality leadership.product-quality leadership.


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Determining the demandDetermining the demand

The process of estimating demandThe process of estimating demand

leads to:leads to:

i. Estimating Price sensitivity of marketi. Estimating Price sensitivity of market

ii. Estimating and analyzing demandii. Estimating and analyzing demand

curvecurveiii. Determining price elasticity ofiii. Determining price elasticity of

demand.demand.


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Analyzing competitorsAnalyzing competitors

costs, prices and offerscosts, prices and offers While demand sets a ceiling and costs setWhile demand sets a ceiling and costs set

a floor to pricing, competitors pricesa floor to pricing, competitors pricesprovide an in between point you mustprovide an in between point you mustconsider in setting prices. Learn the priceconsider in setting prices. Learn the price

and quality of each competitors productand quality of each competitors productor service by:or service by: Sending out comparison shoppersSending out comparison shoppers Acquire competitors price listsAcquire competitors price lists

Buy competitors products and analyzeBuy competitors products and analyzethem.them. Ask customers how they perceive the priceAsk customers how they perceive the price

and quality of each competitors productand quality of each competitors product

or service.or service.


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Selecting a pricingSelecting a pricing

methodmethodThere are three pricing methods thatThere are three pricing methods that

can be employed by a firm:can be employed by a firm:

11

. Cost Oriented Pricing

. Cost Oriented Pricing

22. Competitor Oriented Pricing. Competitor Oriented Pricing

33. Marketing Oriented Pricing. Marketing Oriented Pricing


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Cost Oriented PricingCost Oriented Pricing

Full cost pricing -Full cost pricing -Here the firmHere the firmdetermines the direct and fixed costs for each unitdetermines the direct and fixed costs for each unit

of product. The first problem with Full-cost pricingof product. The first problem with Full-cost pricing

is that it leads to an increase in price as sales fall.is that it leads to an increase in price as sales fall. Direct (or marginal) Cost PricingDirect (or marginal) Cost Pricing

--This involves the calculation of only those costs,This involves the calculation of only those costs,which are likely to increase as output increases.which are likely to increase as output increases.

Indirect or fixed costs (plant, machinery etc) willIndirect or fixed costs (plant, machinery etc) willremain unaffected whether one unit or oneremain unaffected whether one unit or one

thousand units are produced.thousand units are produced.

i i b d hC i i b d h


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Competition-based approachCompetition-based approach --

Going-Rate PricingGoing-Rate Pricing

In going-rate pricing, the firm basesIn going-rate pricing, the firm bases

its price largely on competitorsits price largely on competitors

prices, with less attention paid to itsprices, with less attention paid to its

own costs or to demand. The firmown costs or to demand. The firmmight charge the same, more, or lessmight charge the same, more, or less

than its major competitors.than its major competitors.

Competitive bidding is a veryCompetitive bidding is a veryrelevant example of this approach.relevant example of this approach.


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Marketing Oriented PricingMarketing Oriented Pricing

The price of a product should be setThe price of a product should be set

in line with the marketing strategy.in line with the marketing strategy.

For new products, price will dependFor new products, price will depend

upon positioning, strategy, and forupon positioning, strategy, and for

existing products price will beexisting products price will be

affected by strategic objectives.affected by strategic objectives.


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Selecting the final PriceSelecting the final Price

Pricing methods narrow the range fromPricing methods narrow the range from

which the company must select its finalwhich the company must select its final

price. In selecting that price, the companyprice. In selecting that price, the company

must consider additional factors such as :must consider additional factors such as : psychological pricing,psychological pricing,

gain and risk pricing,gain and risk pricing,

the influence of other marketing mix elements onthe influence of other marketing mix elements on

price,price, company pricing policies, andcompany pricing policies, and

the impact of price on other parties.the impact of price on other parties.


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Methods, Strategies,Methods, Strategies,

TacticsTactics Methods: The method used to calculateMethods: The method used to calculate

the actual price set.the actual price set.

Strategy: Adopted over the medium toStrategy: Adopted over the medium to

long term to achieve marketing objectives.long term to achieve marketing objectives.They have a significant impact onThey have a significant impact on

marketing strategy.marketing strategy.

Tactics: Adopted in the short run to suitTactics: Adopted in the short run to suit

particular situations. Limited impactparticular situations. Limited impact

beyond the product itself.beyond the product itself.


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Pricing StrategiesPricing Strategies

Geographical PricingGeographical Pricing

Price Discounts and AllowancesPrice Discounts and Allowances

Discriminatory PricingDiscriminatory Pricing Product Mix PricingProduct Mix Pricing

Promotional PricingPromotional Pricing


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Geographical PricingGeographical Pricing

BarterBarter: The direct exchange of goods, with no: The direct exchange of goods, with nomoney and no third party involved.money and no third party involved.

Compensation DealCompensation Deal: The seller receives some: The seller receives somepercentage of the payment in cash and the rest inpercentage of the payment in cash and the rest in

products.products. Buyback ArrangementBuyback Arrangement: The seller sells a plant,: The seller sells a plant,

equipment, or technology to another country andequipment, or technology to another country andagrees to accept as partial payment productsagrees to accept as partial payment productsmanufactured with the supplied equipment.manufactured with the supplied equipment.

OffsetOffset: The seller receives full payment in cash: The seller receives full payment in cashbut agrees to spend a substantial amount of thebut agrees to spend a substantial amount of themoney in that country within a stated time period.money in that country within a stated time period.


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Price discounts and allowancesPrice discounts and allowances

Cash and settlement discountsCash and settlement discounts

Quantity discountsQuantity discounts

Promotional discountsPromotional discounts


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Promotional PricingPromotional Pricing

Loss-leader pricing:Loss-leader pricing:

Special-event pricing:Special-event pricing:

Cash rebates:Cash rebates: Low-interest financing:Low-interest financing:

Longer payment terms:Longer payment terms:

Warranties and serviceWarranties and servicecontracts:contracts:

Psychological discounting:Psychological discounting:


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Discriminatory pricingDiscriminatory pricing

Customer-segment pricing:Customer-segment pricing:

Product-form pricing:Product-form pricing:

Image pricing:Image pricing: Channel pricing:Channel pricing:

Location pricing:Location pricing:

Time pricing:Time pricing:


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Product-mix pricingProduct-mix pricing

Product line PricingProduct line Pricing: Clothing: Clothing

Optional-feature pricing:Optional-feature pricing:

AutomobileAutomobile

Captive-product pricing: CellCaptive-product pricing: Cell

phonephone

Two-part pricing : Phone,Two-part pricing : Phone,amusement parkamusement park

By-product pricing: Meat,By-product pricing: Meat,

chemicalschemicals

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97971mkt Manag Module 5